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Overinvestment in selected Central and Eastern European countries: Production and economic effects

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  • Krzysztof Piotr Pawłowski
  • Wawrzyniec Czubak
  • Jagoda Zmyślona
  • Arkadiusz Sadowski

Abstract

Farms need to invest in order to earn incomes and maintain their competitive edge. However, the scale and extent of investments must be aligned with resources of other productive inputs, primarily including land, because otherwise there is risk of overinvestment. Since 2004, Central and Eastern European countries have been provided with access to investment support programs; these are non-repayable aid funds which can potentially lead to overinvestment issues. Therefore, this paper attempts to answer the question on the scale of overinvestment in the countries covered. This is all the more important since that problem has rarely been addressed in economic and agricultural research. The study presented in this paper is unique in that the research tasks are based on unpublished Farm Accountancy Data Network (FADN) microdata for 5839 selected Central and Eastern European farms provided by the European Commission’s Directorate-General for Agriculture and Rural Development (DG AGRI). Based on variables relating to the amount of productive inputs and production volumes, the authors developed their own typology of farms which includes the following categories: optimum investment levels (the growth rate of labor productivity is greater than growth in the assets-to-land ratio); relative overinvestment (while labor productivity grows, it does so at a slower rate than the assets-to-land ratio); absolute overinvestment (labor productivity declines while the assets-to-land ratio grows); underinvestment (decline in both labor productivity and the assets-to-land ratio). The authors demonstrated that members of the ‘absolute overinvestment’ group made flagrant mistakes in investment planning and implementation, whereas members of the ‘relative overinvestment’ group did record an improvement in labor productivity which ultimately can be considered a positive outcome. Underinvested farms were a very small minority in each country. In addition to filling a gap in the methodology for determining agricultural overinvestment, this paper also indicates the scale of that issue in Central and Eastern European countries. This study may be of importance both to farms (as guidelines for investment planning) and to agricultural policymakers who develop investment support programs.

Suggested Citation

  • Krzysztof Piotr Pawłowski & Wawrzyniec Czubak & Jagoda Zmyślona & Arkadiusz Sadowski, 2021. "Overinvestment in selected Central and Eastern European countries: Production and economic effects," PLOS ONE, Public Library of Science, vol. 16(5), pages 1-23, May.
  • Handle: RePEc:plo:pone00:0251394
    DOI: 10.1371/journal.pone.0251394
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    References listed on IDEAS

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    1. Czubak, Wawrzyniec & Pawłowski, Krzysztof Piotr & Wiza, Paulina Luiza & Arion, Felix, 2019. "Polish And Romanian Dairy Farms Using Eu Investment Support: A Comparative Study," Roczniki (Annals), Polish Association of Agricultural Economists and Agribusiness - Stowarzyszenie Ekonomistow Rolnictwa e Agrobiznesu (SERiA), vol. 2019(4).
    2. Somayeh Tohidyan Far & Kurosh Rezaei-Moghaddam, 2019. "Multifunctional agriculture: an approach for entrepreneurship development of agricultural sector," Journal of Global Entrepreneurship Research, Springer;UNESCO Chair in Entrepreneurship, vol. 9(1), pages 1-23, December.
    3. Madsen, Jakob B. & Robertson, Peter E. & Ye, Longfeng, 2019. "Malthus was right: Explaining a millennium of stagnation," European Economic Review, Elsevier, vol. 118(C), pages 51-68.
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    1. Aneta Bełdycka-Bórawska & Piotr Bórawski & Lisa Holden & Tomasz Rokicki & Bogdan Klepacki, 2022. "Factors Shaping Performance of Polish Biodiesel Producers Participating in the Farm Accountancy Data Network in the Context of the Common Agricultural Policy of the European Union," Energies, MDPI, vol. 15(19), pages 1-25, October.
    2. Jagoda Zmyślona & Arkadiusz Sadowski & Natalia Genstwa, 2023. "Plant Protection and Fertilizer Use Efficiency in Farms in a Context of Overinvestment: A Case Study from Poland," Agriculture, MDPI, vol. 13(8), pages 1-16, August.
    3. Agnė Žičkienė & Rasa Melnikienė & Mangirdas Morkūnas & Artiom Volkov, 2022. "CAP Direct Payments and Economic Resilience of Agriculture: Impact Assessment," Sustainability, MDPI, vol. 14(17), pages 1-24, August.

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